Gov. John Kasich moves ahead with turnpike leasing proposal

Thomas Ondrey, The Plain Dealer Gov. John Kasich is moving forward with a proposal to lease the Ohio Turnpike

COLUMBUS, Ohio — Gov. John Kasich is pushing past the rancor and debate and forging ahead with plans to lease the Ohio Turnpike to turn a quick profit.

The administration is looking to hire a consultant to help determine the value of the toll road and assist with drafting a request for proposals that state lawmakers will be asked to approve about six months from now. After that, the consultant will work with a task force pulled together by Kasich to begin collecting bids with a goal of securing a deal by spring 2013.

If all goes well, the turnpike will bring a hefty upfront payment plus a percentage of tolls over the life of the lease, which would last up to a half-century. The administration won't reveal its target amount, but Kasich in February said he wants at least $3 billion for the 241-mile toll road, which stretches across northern Ohio from Pennsylvania to Indiana.

"We've got this asset in the state called the turnpike that has not delivered any money to the local communities and is an asset that is severely underutilized," Kasich said in an interview with The Plain Dealer.

"We would lease it with the hopes of bringing in literally billions of dollars in payments," the Republican governor said. "For Ohio to sit on an unused asset makes as much sense as a company sitting on an unused asset. And when companies do that, companies get taken over."

If Kasich doesn't get his price, he will scrap the whole idea and consider other options, including moving the turnpike under the control of the Ohio Department of Transportation and likely disbanding the Ohio Turnpike Commission, which currently operates the toll road.

But there are critics of the plan, and many of them live along the turnpike. They argue that the toll road is extremely well-kept and friendly to neighboring communities. They fear the possible alternative: a money-hungry private operator with no qualms about raising tolls while slacking on maintenance.

"There is sort of a certain protective quality that we have in Northeast Ohio for the turnpike," said Howard Maier, executive director of the Northeast Ohio Areawide Coordinating Agency. NOACA leads transportation and air-quality planning in the Cleveland area.

"Motorists in general appreciate the fact that it is maintained. That when you drive it in the wintertime you know it is going to be drivable. It has decent rest areas that are well-maintained," Maier said. "And there is a concern of what's happening in Indiana will happen here."

In 2006 Indiana struck a $3.8 billion, 75-year lease for its 151-mile toll road with a foreign consortium. The money has helped fund a 10-year infrastructure project across the Hoosier State. Kasich looks to Indiana as an example to emulate.

But tolls along the Indiana turnpike have more than doubled in just five years, the upkeep of the toll road and its rest stops has been criticized, and the company that leased the turnpike is now in danger of defaulting on the loans used to acquire the Indiana Toll Road, according to the Financial Times.

Indiana is insulated from the company's financial problems because the state has already collected. Indiana Gov. Mitch Daniels' comments, however, might serve as a word of caution for investors looking to strike a public-private partnership for Ohio's turnpike.

Indiana vs. Ohio

Road length

Ohio Turnpike: 241 miles

Indiana Toll Road: 157 miles

Lease deal

Ohio: Gov. John Kasich hopes for $3 billion, including lump sum payment and percentage of toll collections for life of the lease

Indiana: 2006 deal for $3.8 billion up front

Lease length

Ohio: State will propose 30 to 50 years, prefers 40 years

Indiana: 75 years

Compete clause

Ohio: State does not want a clause forbidding it to improve or upgrade parallel roads or highways.

Indiana: Has clause preventing state from upgrading any road within 10 miles of the toll road to a four-lane highway for 55 years.

"It means they overpaid," Daniels bluntly told the Associated Press in June about the reported financial troubles of Indiana's private operator. "That's why you hold an auction. Sometimes you hit the jackpot."

NOACA's sister organizations in Akron and Youngstown have also opposed leasing the Ohio Turnpike, in part because of lessons learned from Indiana, while a similar group in Toledo remains neutral until the administration reveals more details about its plan.

NOACA's planning board, chaired by Medina County Commissioner Stephen Hambley, a Republican, includes mayors, county commissioners and engineers from Cuyahoga, Lorain, Medina, Lake and Geauga counties. In May, the board passed a resolution opposing Kasich's idea of dealing the turnpike away to private interest.

Sentimental attachment to the turnpike aside, there is real debate as to whether now is the time for Ohio to be trying to unload the toll road. With the state and national economy still sour, economists feel certain the turnpike will draw attention from private investors, but they wonder if it will fetch its value.

The Ohio Turnpike grossed a record $232 million in 2010 and looks to continue turning a profit after the commission that runs the toll road installed more automated toll-collecting machines and reduced staffing levels in recent years. The turnpike does carry about $600 million in debt.

"This is not a good time," said economist Ned Hill, dean of the Levin College of Urban Affairs at Cleveland State University. "Traffic volumes are relatively low, the purchaser of the Indiana Toll Road is experiencing financial difficulties, and the possibility of a new recession has increased with the emphasis on balanced budgets in Washington.

"I would be surprised if the deal comes close to that struck by Indiana," he said.

Hill added that because Ohio's turnpike is generally considered well-run and the tolls are reasonable, there doesn't seem to be a great upside for a private operator to be profitable unless tolls are raised significantly.

"You are left with either finding a pigeon for a purchaser or overpromising rewards from the state," Hill said.

Zach Schiller, an analyst with Policy Matters Ohio, a left-leaning think tank, agreed. Anyone who leases the turnpike is going to want a host of clauses and promises from the state to help ensure profitability, such as agreeing not to upgrade roads that run parallel to the turnpike to limit motorists' options for avoiding paying tolls.

But that won't happen if Ohio has its way, said Jerry Wray, director of the Ohio Department of Transportation.

"We will never give up the underlying ownership and control of the turnpike," he said.

For example, Wray said Ohio will maintain a right to upgrade secondary roads, like Ohio 2, whichruns parallel to the turnpike from Cleveland to Toledo, to protect those roads from deterioration from potential heavier use or simply to serve as an alternative to paying tolls.

Wray also prefers a lease that runs from 30 to 50 years, preferably about 40. The state wants a lump-sum payment upfront plus a percentage of the tolls over the life of the agreement. The higher the upfront payment, the lower the percentage, and vice versa, he said.

The state also will insist on placing controls on how much tolls can increase within a given period.

"It will not be some sort of open-ended thing that we are going to turn over to a private concessionaire and allow them to do what they want," Wray said. "We will have terms, conditions and specifications."

The goal, he said, is to create flexibility for motorists and help protect communities near the turnpike but keep truckers -- who account for about 80 percent of the tolls collected -- on the turnpike.

Kasich said the private operator would be responsible for maintaining the turnpike in peak condition or Ohio could back out of the deal and reclaim full control of the toll road while retaining any fees already collected.

Schiller said it sounds as if Kasich is trying to shift all the risk onto the potential private operator. That's fine if Ohio can find a dance partner willing to hand over billions of dollars for mere partial control and assume full risks, he said.

"There is no free lunch here," Schiller said. "You can't write into it every limitation you want and then think you will still get this big pot of money."

Kasich insists Ohio is in the driver's seat because the state is moving quickly toward privatization before other states strapped for cash do the same thing.

"Other states are going to be seeing how they can lease more things like their roads, and once a bunch of people start doing that, then it becomes a buyer's market rather than a seller's market," the governor said. "So, the fact that we would be up there early, quickly, means that we will get a better deal than if we wait."

Maybe. But once Ohio reaches a lease deal, another question will emerge: How to spend revenue from the lease.

Maier, of NOACA, said that because the turnpike is largely paid for and used by northern Ohio residents, the bulk of that money should be used on infrastructure projects across the upper portion of the state.

Kasich said he is open to that mindset, and among the early projects he envisions is speeding up work to dredge the harbors in Cleveland and Toledo. But the governor said that the revenue will be spent for road and infrastructure projects in other parts of the state, too, especially if the state ends up with less federal money for infrastructure projects, as anticipated.

Decisions on how to spend the lease revenue will be contentious, Wray said.

"That will be the second debate," Wray said, "and I'm sure it will be a robust debate."

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